Paper: climate coalition formation

Will the countries of the world get together to protect climate? In the Paris Accord they promised to do so, but free-riding (benefitting from the efforts of others without contributing yourself) is still a temptation some countries seem to give in to. On the other hand, there is evidence that a bottom-up process is already underway in which local communities, cities and individual countries form independent small coalitions which also start to get linked or merged more and more.

A new study by copan's co-speaker Jobst Heitzig and his co-author Ulrike Kornek of MCC, published this week in the renowned journal Nature Climate Change, now applies a combination of modeling techniques including game theory and dynamical systems to model the dynamics of this process of bottom-up coalition formation, using the example of domestic carbon markets that can get linked and an emerging hierarchy of coalitions within these markets that coordinate their greenhouse gas emissions.

The striking result from our model is that no matter whether the agents are myopic (being ignorant of the further process) or farsighted (anticipating further mergers and linkages), a global coalition in a global emissions market will always arise after several steps even if countries were completely selfish -- a "worst-case" assumption often made in game-theoretic analyses.

The main reason for this rather hopeful result is that even if some players succeed in getting others to go first and form a market and coalition without them, so that they can enjoy the benefits of avoided climate-related damages without having to reduce emissions themselves, there still remains the incentive to join that market and coalition later on. This is because larger markets and coalitions always generate a surplus for the coalition because of efficiency gains, and this surplus can be distributed via cap allocations or financial transfers in a way that makes it attractive for the temporary free-rider to join.